Monthly Archives: April 2010

Since the realty prices are back to pre-recession levels, the sales are decreasing.

The price of flats at Ashok Towers in the Parel area of Mumbai is Rs. 28 thousand per square feet. This is much above the rates at which builders were selling in 2007-08 at the peak of the property market boom. At that time, the rates were Rs 25,000-26,000 per sq ft. Gradually, the rates came down to Rs 16,000-Rs 17,000 per sq ft as the recession entered.

Although Ashok Towers is not the only example of this rate hike, other instances are apartments at Raheja Vivaria nearby Mahalaxmi area now quote Rs. 28000 per sq ft. Flats in Lodha Bellissimo are another example whose prices went down to Rs. 15,000 per sq ft at a point of time and now has a rate of Rs 23,000-24,000 per sq ft. This seems to be a smart and quick recovery from the recession days.

Although the prices in cities like Chennai, Bangalore and many other places in the national capital region experienced price hike, but it was on a slower pace than Mumbai and therefore might see continued buyer demand. Ashish Joshi, managing partner, real estate, at Milestone Capital said that in contrast with Mumbai where prices raised up to 40%, it was a hike of just around 10-15% in other cities.

FDI, Foreign Direct Investment, might help real estate firms in raising the foreign money. It has been found through some sources that an ease in capitalization requirement is expected from the government for the realty companies which are eying at raising money in the form of external commercial borrowings.

But, this relaxation is not for all the realty firms. Rather, it is just for companies executing projects identified in the districts covered by Jawaharlal Nehru National Urban renewal mission.

This proposal was brought up in a meeting called by the finance ministry for stringent monitoring by the housing and urban development ministries. This meeting was held in order to ensure that rules laid by FDI are strictly followed in the sector.

As far as FDI in real estate is concerned, realty suffers from lack of clarity says some of the industry insiders.

This relaxation actually has an aim of incentivizing realty companies for coming up with projects in tier 2 and 3 cities.

On the other hand, realty is in dilemma that what would be the response of finance ministry on this proposal since it strictly opposed to any relaxation to the realty sector.

The two companies Tata Realty and Tata Housing belonging to Tata Sons Ltd. are competing with each other which are doing nothing but hindering Tata Sons on a whole. Therefore, Tata Sons is asking them to avoid this competition.

Tata Housing Development Co. Ltd was established so as to develop and sell primarily residential projects whereas Tata Realty and Infrastructure Ltd was set up to function as a fund and develop infrastructure projects. They both are 100 percent subsidiaries of the group.

Some officials stated that the problem arose two years ago when Tata Realty started looking for real estate projects which directly overlap Tata Housing’s business interests.

This competition is on its peak since both of them now plan residential projects in cities such as Pune and New Delhi.

Now, Tata Realty is been told that it has two options; either develop its ongoing and future residential projects as joint ventures with Tata Housing or not pursue housing projects at all.

Mr. Brotin Banerjee, managing director and chief executive officer of Tata Housing maintained a silence when asked if the two groups had competition amongst them and said that just some overlaps were there and added that the companies shared the same chairman, R.K. Krishnakumar.

As per some senior executive of JLLM, Jones Lang LaSalle Meghraj, integrated commercial space developments is following the steps of integrated residential complexes and is thus expanding in India.

Mr. Anuj Puri, th Country Head of JLLM said that this is an upcoming trend as well as a saleable one.

Such projects house office space, five-star hotels and retail area among other facilities.

The project in Bangalore from Brigade Group is an example of such projects while there are many more such projects queued up.

As per the expectation of Puri, the margin builders have kept in these projects is higher than that in other projects.

Other examples of such projects are Capital City by BPTP Ltd in Noida which is spread across 21.17 acres and comprises 2.1 million sq ft of office space, Nirmal Galaxy by Nirmal Lifestyle at Mulund in suburban Mumbai.

One of the builders said that there is no doubt in the success of such projects since their housing counterparts are already a success.

As per the report from JLLM, Jones Lang LaSalle Meghraj, a realty advisory firm, the senior citizens’ home is now a days the most upcoming field of realty. This fact is evident from the increasing number of projects housing stock directed at this section.

The report published by JLLM ’Senior housing sector in India: Key Trends’ gives full details of this observation. According to the report, the seniors are not seen the same way they were seen a decade ago. These days, their status is experiencing a drastic change, the reasons being change in mindset, augmented financial independence and growing cohort size. The big caliber of this segment and its unique needs and promises are offering a good vector of opportunities to the Indian realty market.

Also, as per the report, the number of seniors believing in the idea of good standard of living and the sunset years of their lives with similar-aged companions and sharing facilities in settings of security and enablement is rising rapidly. A survey was conducted on households with senior citizens from which it was inferred that more than 60% of them found concept of an elderly club or a senior citizen’s association as a viable and practical one. The old age homes are now replaced by contemporary retirement homes or resorts was one of the conclusions from the report.

The real estate buyers are in big trouble in how to buy a dream home with these increasing costs of realty day by day. Since more than eight months, a 30-year-old professional, Nisha Parekh, has been searching for a proper and affordable residential space in Ahmadabad for her family but has not yet succeeded despite of aggrandizing her budget by Rs. 10 lakh, i.e, from Rs 25 lakh to Rs 35 lakh.

This is not the story of just one Nisha. It is about all the young buyers who failed to buy their dream home since the prices of realty shoot up by 30 percent in August 2009. Ms Pakekh, who till recently was working as a researcher with ISRO also added that due to these price hikes, she failed to buy her a dream home aven after increasing the budget with a decent amount.

One more witness of this price hike is Mr. Dutta, who noticed that in 2008 prices in Mumbai touched the sky. He added that after this hike, on recognizing lower volumes of transactions, the developers use inducements as goodies to attract home buyers. A price correction of around 15% could bring back buoyancy into the market, based on various indications. According to him, if this price rise continues, it will force the developers to finally come up with certain schemes and discounts that were done away with.

Also according to him, the realtors are majorly focusing on high profile projects which fall in the category of above Rs. 40 lakh costing but if seen from buyer point of you, they are totally unaffordable, even with the economy stabilising and improved job security.

Due to the support from a program taking pace with government being the sponser , the real estate market is now acquiring stability again. But, according to senior executives of three of the top Abu Dhabi master developers with multi-billion dollar projects on their books; it will still take some time to be fully established.
At the Cityscape Abu Dhabi conference, in a finance panel debate it has been noticed that the highest investment potential is in the mid-range residential rental and the retail property sectors.
The CEO of Aldar Properties, John Bullough who is behind the projects as Al Raha Gardens, Yas Island and the Ferrari World theme park; the Executive Director of Mubadala Real Estate and Hospitality, John Thomas, associated with projects like Arzanah, Sowwah Island and the Mina Zayed Waterfront; and the Chief Operating Officer of Sorouh Real Estate, Gurjit Singh, whose works include Shams Abu Dhabi, Lulu Island and Al Ghadeer on the Abu Dhabi-Dubai border were some of the panel members.
Till 21 April 2010, Wednesday, many more inclusive and open debates will be held at the conference alongside Cityscape Abu Dhabi, at the Abu Dhabi National Exhibition Centre. The debate will be on the topic “the future of real estate investment regionally and internationally”.

A really interesting question rising up these days is that is affordable housing taken seriously by our policy planners and key stakeholders? Now-a-days, talking and discussing affordable homes has become a fashion, including those who were not as such associated with realty sector.

But when enters the term ‘affordable homes’, one must put up a question that affordable for whom? Around 44% of our population comprises of people earning Rs 8,500 to Rs 40,000 as their monthly income and fall both in the formal and the informal sectors. Are these flats for these 44% people? Also, the benks are now backing out from providing home loans. Arun Mohan, a senior advocate and writer answered all these questions in his latest offering “Affordable Housing: How Law and Policy can make it possible” .

According to Arun Mohan, there are three areas that need urgent attention to provide affordable homes: One, availability of flats which are affordable; two, availability of bank finance; and, three, availability of land for housing. Also, crisis of confidence is one of the major problem due to which prices are so high and the market is restricted. He gave answers to these questions too. After a keen analysis, he came to the conclusion that “certifying-cum-performance guaranteeing company” [or a regulator] is required, which would control the builders and issues a “wideguarantee certificate” to the flat buyer in order to ensure him that he will be delivered the flat he pays for. This guarantee will prove beneficial since both the flat buyer will be willing to part with his money and bank will also be willing to finance it.

Omaxe, one of the leading real estate construction and development company has come up with a Rs 64.8 cr project. This project is the All India Institute of Medical Sciences (AIIMS) which will be constructed at Rishikesh, Uttarakhand. Mr. Rohtas Goel, the Chairman and Managing Director of Omaxe also added that the project would start next month.

He informed that the order book of Omaxe stood at Rs 825 cr. He also plans to add Rs 200-crore order for Omaxe Infra in FY11. Their next strategy will be to raise Rs 800 crore but are yet waiting for conductive market conditions.

While bringing the company’s projection for FY11 into limelight, Goel said the company’s infrastructure arm’s sale were seen at Rs 500 cr vs. Rs 200 cr. Also, for this year, a profit of Rs. 50 cr. was seen.

Godrej Group, Mumbai’s biggest landowner, is likely to release by the end of this year in Vikhroli, a prime 35-acre chunk.

In the recent path, this could be one of the largest drapes of unencumbered realty hitting the market. In the eastern suburbs, most of the large industrial plots sold to developers over the past 10 years were between 5 and 20 acres.

In Vikhroli, it is estimated that the Godrej controls around 4,000 acres most of which is constituted of a huge mangrove sprawl. This mangrove sprawl is titled as the best preserved mangrove park in Mumbai by environmentalists.

On Tuesday, the executive director of Godrej Properties, Pirojsha Godrej revealed to Times of India that for mixed-use development, a big plan is being prepared. And it is being prepared by none other than architect Cesar Pelli.

The super luxury housing segment whose range was from Rs. 4 cr to Rs. 30 cr and which had taken backseat during the slowdown is now coming back. The demand for these residential properties has risen by 30- 40 percent.

The real estate firms such as Lodha Developers, Orbit Corporation, and Skyline Constructions are taking advantage of this demand hike and plan to cash in on a rather specialized alcove- the boutique homes category.

According to the national head (residential agency) Knight Frank India, Anand Narayanan KB, the sales of such luxury boutique homes are much higher as compared to volume luxury properties since there is limitation in this segment.

The HNI segment is to be hit by these homes. This includes senior professionals, CEOs, wealthy non-resident Indians and entrepreneurs in new-age businesses who are seeking for house in India. The CEO, Homebay Residential, Jones Lang LaSalle Meghraj, a real estate services firm, Mr. Raminder Grover noticed that the prices of luxury homes has gone up by 20%.

However, he also added that the prices should not rise now and become stable or otherwise the demand will go down again.

The builders might now suffer with costlier scrounging since Reserve Bank of India (RBI) plans to ask banks to set apart more funds for loans to commercial realty projects. This in turn will force banks to aggrandize the interest rates on such loans.

According to senior bankers RBI can take either of the two options. First, increase normal provisioning or second, risk weight on bank loans to realty firms in the forthcoming policy on 20th of April. This will be intended at shielding banks’ contact with properties in the midst of mounting prices.

According to the Chairman and Managing Director of Indian Overseas Bank, SA Bhat, the outcome of RBI not raising the cash reserve ratio (CRR) and keep signaling rates like reverse-repo rate and repo rate untouched will be that the prudential norms will get tighten. “An increase in risk weight, especially on realty loans, is not ruled out”, he added.

As per the latest available figures, in November 2009, banks exposure to commercial realty was Rs. 88,581 crores.

The capital which is set apart to estimate capital sufficiency ratio is the risk weight which is now 9 percent for all banks. Less capital is to be kept for borrowers with increased credit rating. The risk weight is 20 percent for triple A clients, which indicates that a reserve of Rs. 1.80 of its own capital for every Rs. 100 loan is to be needed within banks for such borrowers.

A memorandum has been submitted to the Finance Ministry concerned with the appeal for removal of service tax on housing complexes under construction by CREDAI, Confederation of Real Estate Developers’ Associations of India which is a real estate industry body.

The Chairman of CREDAI, Kumar Gera stated that they have put forth their concerns and suggestions and also discussed the probable impact of the provisions with the Ministry. An understanding of the problem and required corrective steps will be taken is a hope from the government. The list of recommendations was built in consultations with KPMG, its knowledge partner and was submitted to Y G Parande, a Finance Ministry Member (Budget).

According to Gera, the money collected through the imposition of service tax on real estate development will not be big enough; rather it would majorly lead an overall negative sentiment and a net loss of revenue.

In budget 2010, it was announced by Mr. Pranab Mukherjee, the Finance Minister that a tax would be imposed on the housing complexes under construction but later it was clarified by the officials that service tax would be imposed on 33 per cent of total selling price. This was interpreted by the real estate players as a 3.5% price escalation for the buyers.

According to CREDAI, it was an impractical proposal to levy service tax on construction of complex since would lead to government giving preference to the secondary market of completed projects.

The conditions of commercial property are finally ameliorating. Both the retail space and office are back in demand. Although, the development in 2010 is most likely to occur in tier-1 cities of Mumbai, NCR, Bangalore and Chennai, a new group of companies is, for the first time, considering off shoring in these destinations.
In 2010, an office space of about 60.9 million sq ft. is likely to come up in seven cities including Mumbai, NCR, Kolkata, Pune, Hyderabad, Chennai and Bangalore is the report by Jones Lang LaSalle Meghraj (JLLM), a global real-estate consultant. Around 74 percent of it will be supplied by the tier 1 cities.
The change that has come up in the market is noticeable to the realtors too. The General Manager of business development, Prestige Estates Projects, Nandakumar OP said that as far as commercial leasing activity is concerned, there is an appreciable increase in it. Since the price befits of offshoring/ outsourcing to India are eyed by a large number of spectators, there is a possibility of see a lot of new companies scouting for leased premises.
There is even a good scope of the retail side of the commercial market.
Mr Gupta of JLLM told that although numerous of retailers, both foreign and domestic, are evaluating their plans of expansion in India in the coming 2-3 years, the number of enquiries from retailers that are converting into consumption are mostly in the forthcoming malls only.

A new project named Kingswood Orientalis being presented by Jaypee Greens in Sector 128, Noida. These are elegant and exclusive residences, with an 18 Hole Graham Cooke Golf Course next to it. It has a built-up area in two sizes of approximately 3,700 square feet and 4,600 square feet. There are 160 units. Head of business development and strategy at Jaypee Greens, Manu Goswamy commits that the customers will be provided with the complete layout designs. The cost of these individual residences will be calculated with Rs. 8,100 per sq ft as the basic selling price. There will be three floors in each villa.

The community will have some special features since it is one of its kinds in the region & to give it a premium look feel. Zen Gardens/Bonsai led landscaping, Chip & putt golf course, Pebble walkways in parks, Oriental street lighting and street furniture, Golf Carts will be some of the attractive features apart from the villas themselves.

On a whole, it is a very exclusive community of luxury villas providing perfect living for the select few who have the taste of finer things and wants to explore the unique luxury lifestyle.

The realtors of Gujarat have eyes on the Latin American market. Around 100 developers and builders of the state plan to spend a 10 day span in Argentina and Brazil to explore the realty markets of these countries.

The president of GIHED, a developer body in Ahmadabad, Suresh Patel believes that the economy of Argentina and Brazil is similar to that of India. According to him, this survey will prove as an excellent opportunity to compare Indian market with the Latin American market. Although Brazil belongs to the BRIC nations, the economy of Argentina has been growing at 8-9 percent per annum. The builders will show up at Buenos Aires, the capital of Argentina, also known as ‘The Paris of South America. São Paolo and Rio de Janeiro which are one of the largest cities in Brazil and are considered to be safe as far as realty investment is concerned will also be explored by them.

The plans of builders don’t end up with just having a meeting with local analogues, rather they also plan to jump into some joint ventures. Mr. Patel also added that they will try to go deep into the collaboration between town planning and acts which exist in these cities.

The realty sector of Dubai was also surveyed by a similar group of developers in January. When Mr. Patel was telling that the realty sector in Gujarat was much more risk free, he also told that although the cost of property in Dubai are low, the developers are still doubtful about investing there since the return on investment does not seem to be a good one.

According to a recently conducted survey, it has been found that over 34% of the people who are interested in purchasing property across the country wish to own a home in NCR-Delhi.

The survey revealed the fact that NCR/ Delhi has got the highest priority in 2010 for real estate investment, i.e. the most preferred realty investment destination in 2010 is NCR/Delhi. With 28% purchasers interested in Mumbai, it has become the next choice of investors. Next in the line are Hyderabad and Bangalore with 11% buyers.

Also, as per the survey, in 2010 the real estate sector is likely to be much more driven by the end user. Since last year was under the clouds of unstable property prices and recession, the investors were backing off from the realty sector, but with the slightly stable property prices and the better conditions of economy, they are back into the lead. It would also be interesting to know that most of the purchasers, who this year plan to buy a house are usually the one who want it for own use which brings a conclusion that the ones who drove the realty in 2004-07, the speculators are out of the market now. Even the people interested in buying property now are the long-term investors.

The survey also brought out the fact that 67% of the property seekers are interested in property for own use and just 23% are the ones who are long term investors.

Small Indian towns have succeeded in gaining much attention and interest of foreign investors than the metros and big cities.

These small towns are being preferred more by the investors as far as the establishment of manufacturing facilities are concerned. A study which was government sponsored noticed that this has established linkages with suburban and rural regions of the country.

A study by NCAER, the National Council of Applied Economic Research concluded that a remarkable proportion of FDI- manufacturing plants seem to be located in Class-3 cities.

There were 1273 plants of 401 FDI-enabled manufacturing companies which were considered and around 54% of them are located in small cities.

The Population Census-2001 classified that the total population of these towns is even less than 5 lakhs. It also said that these towns and cities can be named as sub-urban and closer to the rural areas of India.